Discretionary Trusts

BR investment gifted into discretionary trust to reduce estate value for purposes of RNRB threshold. 

SCENARIO:

A married couple in their 80s who have not yet done any estate planning, place £800,000 into a BR product, having an estate valued at £3 million, including a house worth £1 million. 

 

 

 

 

 

 

 

After 2 years, once the BR product is qualifying and not liable to IHT, it is put into a Trust

saving £160,000 as BR qualification means there is 0% CLT + no exit or periodic charges

The couple die in 2020

RNRB taper on £800,000 above £2 million =£400,000
(£1 RNRB lost for every £2 of estate value over £2m)
£350,000 RNRB available 
So, the entire RNRB is tapered away

If the £800,000 had not been in trust, even if it was a BR qualifying and not liable to IHT, it would have been considered as part of the estate, taking the estate value to £2.8 million. 
As a result, the full £350,000 RNRB would have been lost.

In addition, the couple hadn’t used any of their respective NRBs and their estate benefits from a further allowance of £650,000 on their estate. So, the NRB and the RNRB (£175,000 each) total £1 million and can be set against the house. 

*(No RNRB taper applies as estate value does not exceed £2,000,000)

Leave a Reply

Your email address will not be published. Required fields are marked *

Scroll to top